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Globalization, Macroeconomic Performance, and Monetary Policy

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Author Info
FREDERIC S. MISHKIN

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Abstract

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes. Copyright (c) 2009 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00204.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): s1 (02)
Pages: 187-196
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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:s1:p:187-196

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References listed on IDEAS
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  1. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September. [Downloadable!]
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  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
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  3. Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2007. "Outsourcing and Volatility," NBER Working Papers 13144, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings, Federal Reserve Bank of Kansas City, pages 77-112. [Downloadable!]
  5. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD, Economics Department. [Downloadable!]
  6. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, bonds, money markets and exchange rates - measuring international financial transmission," Working Paper Series 452, European Central Bank. [Downloadable!]
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  7. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78. [Downloadable!]
  9. Natalie Chen & Jean Imbs & Andrew Scott, 2006. "The dynamics of trade and competition," Research series 200610-3, National Bank of Belgium. [Downloadable!]
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  10. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  11. Luca Guerrieri & Christopher Gust & David López-Salido, 2008. "International competition and inflation: a New Keynesian perspective," International Finance Discussion Papers 918, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Erceg, Christopher & Gust, Christopher & López-Salido, J David, 2007. "The Transmission of Domestic Shocks in Open Economies," CEPR Discussion Papers 6574, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr. [Downloadable!]
  14. Jon Faust & John H. Rogers & Shing-Yi B. Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers 784, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  15. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
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  1. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2008. "The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics," Economics working papers 2008-17, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
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